NEW YORK: High-yield issuers are expected to jump on the rally in spreads sparked by Wednesday's announcement that the Fed will keep interest rates at zero for a "considerable time" to come.
Some market participants expected the central bank to alter rates guidance on the back of improving economic data, but the central bank saw significant slack in the jobs market.
That signaled rates are not about to rise sharply, as some had feared, leading to a quarter-point jump in the CDX HY22 index to around 107.25 by late Tuesday afternoon.
"We're still in a market where the Fed is driving things, rather than macro data," Brad Rogoff, head of credit strategy at Barclays, told IFR.
"For high-yield there is a bit more of a spread cushion, which makes rates slightly less important," he said.
"But over the short term, because of fund flow volatility, it can impact the market."
Two new deals for RSP Permian Inc and Simmons Foods were announced soon after Fed Chair Janet Yellen's news conference ended, joining a number of deals already in the pipeline.
Marketing for one of those - Burger King's US$2.25bn acquisition financing - got under way today.
The deals that did price today seemed to go well. Four issuers raised a combined US$3.27bn in the primary market, including two jumbo deals from Aecom Technology and Alcoa.
Alcoa dodged a bullet by pitching itself as an investment-grade corporate in order to secure a huge US$8.5bn turnout for its US$1.25bn acquisition financing.
Desperate to avoid a junk-bond market riddled with gapping prices, the Ba1/BBB-/BB rated aluminum company clung to that Triple B minus rating from S&P and slapped on a double-digit new issue concession to lure in yield-hungry high-grade buyers.
"The high-yield market has been brutal, and the difference between a Triple-B minus pricing and Double-B is quite significant," said one bank's head of debt syndicate.
TOUGHER TIMES
Issuers have had a tougher time pricing deals since Labor Day, with many trades coming at the wide end of talk, if not being shelved completely.
The fourth postponement in a week was announced Wednesday as Tower Automotive Holdings cited less favorable market conditions for not going ahead with a US$250m eight-year non-call three senior unsecured note.
APN News & Media, Capstone Mining and Vistaprint pulled deals last week.
Rogoff at Barclays said the recent widening in spreads was a mere blip, noting that borrowing costs are still attractive. "High-yield is down about a point this month. We're not pounding the desk saying it's a great buying opportunity," he said. One high-yield syndicate banker said pricing was settling down.
"The market has taken the (Fed) news well, and pricing feels like it has moved back again for issuers with deals coming at talk or even inside of talk," the banker said. Engineering design firm Aecom's US$1.6bn trade was split between a US$800m eight-year and a US$800m 10-year tranche.
Both priced at par to yield 5.75pc and 5.875pc on the eight- and 10-year respectively - inside 5.875% area and 6% area price talk.
Proceeds will finance the company's acquisition, announced in July, of URS Corp - an attractive target for the company because of its US government contracts.
US federal agencies accounted for a third of its 2013 revenue, and government customers include the US Army and the Department of Energy.
A Triple C rated US$270m eight-year non-call three senior note also crossed the line for Onex York Acquisition.
The deal priced at par to yield 8.5%, the wide end of 8.25-8.5% talk.
The bond, along with proceeds from a US$655m loan, will finance private equity firm Onex Partners' purchase of insurance claims service provider York Risk Services Group from ABRY Partners. The acquisition was struck in July for US$1.33bn.
Also on the smaller side was a US$150m issue from JAC Products - a debut five-year senior secured note that priced in line with talk at par to yield 11.5%.
Proceeds from the trade, originally sized at US$140m, will refinance a loan and also pay private equity owner Wynnchurch Capital a dividend. The extra cash raised from the bond will increase the size of that payment.
JAC Products supplies roof rack systems and cargo management products to the global automotive industry, and was bought by Wynnchurch in December 2010.
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